Via The Economic Times:
India will save about Rs 4,000 crore after it got US energy major Exxon Mobil Corp to lower the price of liquefied natural gas (LNG) after the new rates kick-in from January next year.
Petronet LNG Ltd, India’s biggest importer of liquefied natural gas, in August 2009 signed a 20-year deal to buy 1.44 million tonnes of LNG from Exxon’s share in the Gorgon project in Australia. The deliveries under the contract started early this year.
“The revised price is still to be documented. We are trying to get the revised price implemented from January 1,” Petronet LNG Ltd MD and CEO Prabhat Singh told reporters here.
Exxon Mobil Corp has agreed to charge 13.9 per cent of the prevailing Brent oil price at the port of delivery rather than previously decided 14.5 per cent of the oil rate at the port of loading. The delivered price was considered too high and so price was renegotiated.
“We will be saving about USD 1 per million British thermal unit or so from the price renegotiations,” he said. “Over the contract period it comes to about Rs 4,000 crore.”
Besides changing the indexation, LNG pricing will be on DES basis rather than FOB previously decided.
Delivered ex ship (DES) is a trade term requiring the seller to deliver goods to a buyer at an agreed port of arrival. Under FOB, the buyer has to make the shipping arrangement.
At USD 50 per barrel oil price, Gorgon LNG, whose supplies started in January this year, would have cost USD 7.25 per million British thermal unit at the port of loading. Adding another USD 1 for transportation would have led to delivered price of USD 8.25 in the old contract.
In the new formula, Gorgon LNG delivered at Indian port will cost USD 6.95 per mmBtu.
Roughly a billion dollar saving right there. At today’s oil price, the landed cost will be more like AUD11.40. Yet local WA contracts are currently around $6Gj. That’s way below export net-back thanks to…wait for it…domestic reservation.
On the east coast, contract users are still paying AUD12-18Gj delivered even as India gets Aussie gas delivered for AUD11.40. The answer is not to divert WA gas east, it’s to keep eastern gas at home. You know, like WA does. From Matthew Stevens:
The ever loquacious Gallagher introduced his latest investor day briefing on Thursday with advice that Santos had lined up transport agreements that will unlock up to 300 petajoules of uncontracted gas in eastern Queensland before describing how that new resource would be swapped with more distant supplies to reduce delivery costs and allow the driller to extract maximum value for its molecules.
The potentially virtuous circle of benefits earned from Santos’ latest initiative in portfolio management starts and ends with the relative proximity of this new gas to the GLNG plant that Santos operates on behalf of its joint venture partners.
The unconventional Combabula gas, which would likely be more expensive to extract that the conventional Cooper stuff that it will replace, will be delivered at a competitive cost to the joint venture’s gas chillers because it will travel much less distance in other people’s expensive pipelines.
And what of the Cooper Basin supply that is contracted to the LNG project at a price that makes it the lowest priced gas on the east coast and will be replaced by the Combabula stuff?
Well, it will become “swing gas” that can be directed to where ever the best returns can be gathered. And while there is a domestic gas shortage that makes the Gladstone export price the benchmark for the whole east coast market, those returns will be extracted in South Australia, Victoria and NSW. Again, that is because of the proximity of the state-straddling Cooper Basin fields to those critical demand centres.
…On the customer front, track side discussions at Flemington with some major Australian gas customers over the weekend left me certain that the east coast gas market remained deeply vulnerable to demand-shocks and that gas producers were still acting with rare aggression in crimping contract tenors and squeezing prices.
But there was a view just as consistently expressed by the big users that Santos was working hard to recover its reputation as a domestic supplier.
Why is STO enjoying a “virtuous cycle” when it’s business should be collapsing owing to an enormous malinvestment in the loss-making Curtis Island plant? Because it is a card-carrying member of the east coast gas cartel that now loses money of every tonne shipped offshore but recoups it by killing foisting life-threatening utility bills on local pensioners.
That Australians are happy to take this outrageous gouge without burning something down lowers my opinion of them greatly.
